Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are estimating the weighted average cost of capital (WACC) for your company based on the following information: Common stock: 20 million shares outstanding, $50

You are estimating the weighted average cost of capital (WACC) for your company based on the following information: Common stock: 20 million shares outstanding, $50 market price per share, common stock beta is 1.90, market return is 11.5%, and risk-free rate is 4.5%. Preferred stock: 12 million shares outstanding, $90 market price per share, quarterly dividend of $1.50. Debt information: $1.3 billion of debt at face value, quoted price of 95. There is one issue of bonds outstanding with 6% coupon rate, interest paid semi-annually, with 12 years to maturity. The company's marginal income tax rate is 30%. Calculate the following returns:

(1/100 of one percent without % sign, e.g. 12.671, if a negative percentage, -9.56).

1. Cost of common share equity (%):

2. Cost of preferred share equity (%):

3. Cost of debt (%):

4. Proportion of common share equity (%):

5. Proportion of preferred share equity (%):

6. Proportion of long-term debt (%):

7. Weighted average cost of capital (%):

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey Of Accounting

Authors: James D. Stice, W. Steve Albrecht, Earl Kay Stice, K. Fred Skousen

1st Edition

0538846178, 978-0538846172

More Books

Students also viewed these Accounting questions

Question

Be able to suggest some future options for human resources

Answered: 1 week ago

Question

Be able to create a contract for consultant services

Answered: 1 week ago